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SA’s financial system is stable, says SARB

Posted on June 24, 2019

SA’s financial system is stable, says SARB

Financial stability is not an end in itself but, like price stability, is generally regarded as an important precondition for sustainable economic growth, development, and employment creation. Financial stability refers to a financial system that is resilient to systemic shocks, facilitates efficient financial intermediation, and mitigates the macroeconomic costs of disruptions in such a way that confidence in the system is maintained.

The SA Reserve Bank releases it’s Financial Sustainability Review each year. In its most recent report in November 2018, SARB says global economic growth slowed, and medium-term risks remained tilted to the downside.

“Aside from being affected by exogenous factors through trade, investment and financial channels, South Africa’s growth prospects will be affected by domestic policy setting and idiosyncratic risks, reflected in the deterioration of a number of key indicators. Despite these challenges, the South African financial system continues to efficiently facilitate financial intermediation and mitigate negative spillovers and disruptions,” SARB said.

Overall, the financial sector remained strong and stable, even with some headwinds from increased uncertainty around global economic policy, a challenging low domestic economic growth environment and persistent fiscal risks.

SARB said South Africa’s financial sector is characterised by well-regulated, highly-capitalised, liquid and profitable financial institutions, supported by a robust financial infrastructure and strong regulatory and supervisory frameworks.

There have been a number of legislative and regulatory initiatives that, once implemented, could enhance the resilience of the South African financial system. These include the release for public comment of the Conduct of Financial Institutions Bill and the proposed Financial Matters Amendment Bill. In addition, a review of the National Payment System Act 78 of 1998 to take into account changes in the payment landscape and to align the regulation of the payment system to international best practice is also underway. The national payment system (NPS) plays a critical role in the settlement of domestic and international payment transactions and is key to a stable financial system.

Fiscal sustainability remains an important factor for South Africa’s sovereign credit rating. As a percentage of gross domestic product (GDP), government debt has doubled over the past 10 years, but remains below the 70% threshold level identified as high risk by the International Monetary Fund (IMF). Key fiscal metrics have continued to deteriorate during the reporting period and fiscal consolidation efforts have been hindered by debt-burdened SOEs that have struggled to meet their debt obligations.

To read the full report, click here.